Credit Utilization: What is it & why it matters?

Updated: Nov 12, 2021

Credit utilization is very important and is one of the five factors that make up your credit score. Once you start charging over a certain percentage of your revolving credit (like credit cards or lines of credit), it will impact your scores.

The credit agencies look at the amount of revolving credit you are using and divide it by the amount of credit you have available. Once you start charging over 25% - 30% of your available credit (even if you are paying the credit card off monthly), it will impact your scores.

Generally, a credit utilization ratio of under 30% is an indication you are managing your credit responsibly and you are not overspending. After you start charging or carrying a balance over 25-30% of your available credit, it appears to the credit agencies you are overspending and could be a potential reg flag you are having trouble managing your bills.

If you are one of those consumers who is being impacted by this and are frustrated your credit scores are not higher, I recommend you contact each creditor and request your credit limit be increased. Based on the typical amount you charge regularly, request your credit limit be increased to an adequate amount.

How to calculate credit utilization?

Here is an example: if you typically charge $2k/mo, your credit limit would need to be $8k to maintain a 25% credit utilization ratio.

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